Brazil Credit Rating Raised by Fitch as Rousseff Shows `Fiscal Restraint'

Brazil’s credit rating was raised one level by Fitch Ratings, which cited the economy’s growth prospects and budget cuts under President Dilma Rousseff.

The country’s foreign debt rating was increased to BBB, the second-lowest investment grade and in line with Mexico, Russia and Thailand, from BBB-. The outlook is stable, Fitch said in a statement. The ratings company last boosted Brazil’s ranking in May 2008. Standard & Poor’s and Moody’s Investors Service rate the country one step lower.

Latin America’s biggest economy may grow 4.1 percent this year after expanding 7.5 percent in 2010, the fastest in more than two decades, according to the median estimate of 14 analysts surveyed by Bloomberg. Rousseff, who took office Jan. 1, pledged to cut this year’s budget by 50.7 billion reais ($31 billion) to help the central bank contain inflation.

“The Rousseff administration has displayed signs of greater fiscal restraint, which coupled with healthy growth prospects should allow for a fall in Brazil’s heavy general government debt burden,” Fitch said in the statement.

The extra yield investors demand to own Brazilian bonds instead of U.S. Treasuries narrowed 2 basis points, or 0.02 percentage point, to 168 at 3:20 p.m. New York time, according to JPMorgan Chase & Co. The Bovespa stock index rose 0.5 percent. The real pared its drop and was down 0.1 percent to 1.6090 per dollar.

Debt Ratio

Brazil’s net debt fell to 40 percent of gross domestic product in February from 60 percent in January 2003, when Dilma Rousseff’s party, the Workers’s Party, first won the presidency. Rousseff has pledged to slash spending to ensure net debt will continue to drop as a percentage of GDP and help the central bank fight inflation.

“What they’ve accomplished so far has been met with strong approval, upgrades and tighter trading debt, so it’s almost like a positive feedback loop,” said Gunter Heiland, who helps oversee $2.1 billion of emerging-market assets at Greenwich, Connecticut-based investment fund Gramercy. “Now we’re just looking for a continuation of that great behavior that we’ve seen.”

Brazil’s international reserves stood at $317 billion on April 1, up 30 percent from a year earlier.

To contact the reporters on this story: Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net; Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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